Showing posts with label pensions. Show all posts
Showing posts with label pensions. Show all posts
Wednesday, July 17, 2013
State Pension Plan Recovering
The Maryland state pension system recently reported that it achieved a 10.6% return on its investment portfolio for the fiscal year that ended June 30, 2013 - exceeding the plan's annual target of a 7. 75% return.
The system has now recovered from massive losses in fiscal 2008 and 2009, but its 10-year return on investment of 6.62% is still below its target.
Click here for more information.
Friday, July 27, 2012
Defined contribution plans won't save taxpayer dollars
July 26, 2012
Baltimore Sun
Letter to the Editor
The Sun's recent editorial on public pensions ("Prudence and public pensions," July 20) misses the mark in several respects.
Readers should be forewarned that The Sun's proposed solution — a switch to defined contribution plans — is a recipe for increased costs and decreased retirement security. Walking away from the fiscal efficiencies of defined benefit plans and closing one plan while opening another serve to drive up the state's costs. Moreover, moving to a defined contribution plan typically leads to a drastically decreased benefit and an increased reliance on social services by retirees, again driving up state costs.
States pursuing this swap have quickly come to wish that they'd done their homework beforehand. West Virginia froze its pension plan to move to a defined contribution plan only to encounter these very problems. The negative repercussions were so endemic that West Virginia decided to return to its pension plan.
So how can we further stabilize Maryland's pension fund? Last year's significant increases to employee contributions and decreases to benefits put the fund on a quick path to a higher funded status. The best way to accelerate the fund's stability is to eliminate the corridor funding method which has caused the state to under-fund the pension system for years. Leading pension experts have called for an end to the corridor method, and momentum seems to be building. The Joint Committee on Pensions has decided to work with the State Retirement Agency and the Department of Legislative Services to explore the feasibility of getting out of corridor funding. We look forward to this conversation, which has the best shot at providing long-term stability to Maryland's pension fund.
Let's hope that this conversation focuses on solutions that address the root causes of the problem rather than ideas which would only exacerbate our challenge to provide adequate retirement security for educators and public employees.
Sean Johnson, Annapolis
The writer is managing director of political and legislative affairs for the Maryland State Education Association.
Baltimore Sun
Letter to the Editor
The Sun's recent editorial on public pensions ("Prudence and public pensions," July 20) misses the mark in several respects.
Readers should be forewarned that The Sun's proposed solution — a switch to defined contribution plans — is a recipe for increased costs and decreased retirement security. Walking away from the fiscal efficiencies of defined benefit plans and closing one plan while opening another serve to drive up the state's costs. Moreover, moving to a defined contribution plan typically leads to a drastically decreased benefit and an increased reliance on social services by retirees, again driving up state costs.
States pursuing this swap have quickly come to wish that they'd done their homework beforehand. West Virginia froze its pension plan to move to a defined contribution plan only to encounter these very problems. The negative repercussions were so endemic that West Virginia decided to return to its pension plan.
So how can we further stabilize Maryland's pension fund? Last year's significant increases to employee contributions and decreases to benefits put the fund on a quick path to a higher funded status. The best way to accelerate the fund's stability is to eliminate the corridor funding method which has caused the state to under-fund the pension system for years. Leading pension experts have called for an end to the corridor method, and momentum seems to be building. The Joint Committee on Pensions has decided to work with the State Retirement Agency and the Department of Legislative Services to explore the feasibility of getting out of corridor funding. We look forward to this conversation, which has the best shot at providing long-term stability to Maryland's pension fund.
Let's hope that this conversation focuses on solutions that address the root causes of the problem rather than ideas which would only exacerbate our challenge to provide adequate retirement security for educators and public employees.
Sean Johnson, Annapolis
The writer is managing director of political and legislative affairs for the Maryland State Education Association.
Wednesday, February 29, 2012
Stop The Shift - news round-up
There has been a lot of media attention focusing on the Governor's proposal to shift a portion of the cost of teacher pensions on to the counties. As we've noted before, this would be disastrous to the MCPS budget and the county budget as well.
Here are recently published letters to the editor of The Gazette:
Here are recently published letters to the editor of The Gazette:
The first is from Doug Prouty president of the Montgomery County Education Association and Gino Renne, president of UFCW Local 1994, MCGEO Association.
The second is from Roger Berliner president of the Montgomery County Council and Andrea Harrison, chairwoman of the Prince George’s County Council.
In Frederick County, FCTA president Gary Brennan and Frederick County's Commissioners held a joint press conference to protest the pension shift scheme.
You can also watch MCEA Executive Director Tom Israel speak before the County Council about the need to prevent this shift:
Thursday, February 23, 2012
Will Our Legislators Represent Montgomery County’s Interests?
This letter, from the presidents of the six public employee unions in Montgomery County, calls upon the county's state delegation to oppose the shifting of pension costs on to the county's as the long term effects would be devastating.
Will Our Legislators Represent Montgomery County’s Interests?
The General Assembly is currently debating a proposal from Governor O’Malley to shift hundreds of millions in pension costs from the state to the county governments. This proposed shift is not about improving the sustainability of the state pension plan. It is simply an effort to shift the state’s budget problems onto the counties.
It is the state government that controls the pension plan and its financial health, not counties. It is the state legislature that determines pension benefits. It is the state legislature that has knowingly underfunded the pension plan for more than 15 years. The legislatively sanctioned “corridor funding” scheme has intentionally set aside less money into the pension plan each year than recommended by the plan’s auditors. It is the state legislature that improved benefits in 2006 – just before an election – but failed to provide a means to pay for the increased cost.
It is unconscionable for the legislature to now expect local governments to pay the cost of these past failures by the state. The unfunded accrued liability is a consequence of decisions made by the state government, and should not be shifted onto local governments.
In Montgomery County alone, the new county cost next year would be more than $47 million. The following year it would hit $61 million, and in three years - more than $71 million. That would put pressure on county’s taxpayers and on the public services our citizens deserve and depend on.
The state must resist the temptation to balance its budget on the backs of our counties. Our Senators and Delegates are elected to represent the interests of our districts. It is not in the interests of Montgomery County taxpayers for the state to abandon its historic commitment to help fund education by paying the costs of pensions for employees of school systems, community colleges and local libraries.
We urge Montgomery County’s local Senators and Delegates to stand firm in opposition to the proposed pension cost shift.
Sincerely,
Marc Zifcak Debra Mugge
President President
Fraternal Order of Police Montgomery County Association
Montgomery County Lodge 35 of Administrators and Principals (MCAAP)
Gino Renne Doug Prouty
President President
UFCW Local 1994,MCGEO Montgomery County Education Association
John Sparks Merle Cuttitta
President President
Montgomery County Career SEIU Local 500
Fire Fighters Association,
IAFF Local 1664
Wednesday, February 22, 2012
Do your part to protect school funding
Why is it so important to prevent a shift of the cost of teacher pensions on to the counties? Why must the broken Maintenance of Effort law be fixed? Watch this video of our members and see why we must work to make this happen.
1. Attend the Educator Town Hall on Monday, February 27 in Annapolis.
RSVP at https://marylandeducators.wufoo.com/forms/register-for-the-educator-town-hall/
2. Participate in the Statewide Day of Action on Tuesday, February 28. Simply call 866-268-MSEA on Tuesday the 28th. You will hear an automated message and then be connected to the legislative switchboard. Our goal is to get 1,000 calls in to the General Assembly on Tuesday. The number is live now and you can call anytime.
3. Send emails through the Capwiz system. The email message is updated as events demand. The latest information will be made available at the Do Your Part page on the MSEA website at www.marylandeducators.org/doyourpart.
What can you do right now?
1. Attend the Educator Town Hall on Monday, February 27 in Annapolis.
RSVP at https://marylandeducators.wufoo.com/forms/register-for-the-educator-town-hall/
2. Participate in the Statewide Day of Action on Tuesday, February 28. Simply call 866-268-MSEA on Tuesday the 28th. You will hear an automated message and then be connected to the legislative switchboard. Our goal is to get 1,000 calls in to the General Assembly on Tuesday. The number is live now and you can call anytime.
3. Send emails through the Capwiz system. The email message is updated as events demand. The latest information will be made available at the Do Your Part page on the MSEA website at www.marylandeducators.org/doyourpart.
Tuesday, February 07, 2012
Statewide Teacher Town Hall 2/27
In partnership with the Marc Steiner Show, MSEA is helping to organize a Teacher Town Hall which will be broadcast live on WEAA 88.9, Delmarva Public Radio, and other outlets. The event will be held at the Governor Calvert House in Annapolis from 5-7 PM on Monday, February 27 and will be moderated by Marc Steiner.
The Town Hall will feature a discussion between educators and a panel of policymakers and elected officials about our schools and priority education issues. It is very important that we fill the room with educators ready to participate and share their stories and viewpoints.
The event should provide for a robust, interesting dialogue and a prime two-hour window when we can communicate our message to legislators and thousands upon thousands of listeners. Please come to the event, and please encourage activists in your school to attend as well. This is a great opportunity, and it’s up to us to make the most of it. Please register to attend the event here: https://marylandeducators.wufoo.com/forms/register-for-the-teacher-town-hall/
Light refreshments and snacks will be served.
Friday, February 03, 2012
Fixing MOE and stopping pension cost "sharing"
This week has seen our fight getting a lot of attention in the media. We know that the broken Maintenance of Effort law must be fixed to ensure proper local funding of our schools and that the state "sharing" the costs of pensions with the counties will strain already thin budgets.
If you missed MSEA's Sean Johnson on the Marc Steiner show, you can listen here to hear why MOE must be fixed and shifting teacher pension costs is bad policy.http://www.steinershow.org/
The Maryland Reporter also has a story: http://marylandreporter.com/2012/02/03/education-groups-want-to-strengthen-requirement-for-maintaining-school-funding/
The Baltimore Sun reported on the release of a multi-stakeholder report outlining a comprehensive fix for MOE. You can read the report here.
If you missed MSEA's Sean Johnson on the Marc Steiner show, you can listen here to hear why MOE must be fixed and shifting teacher pension costs is bad policy.http://www.steinershow.org/
The Maryland Reporter also has a story: http://marylandreporter.com/2012/02/03/education-groups-want-to-strengthen-requirement-for-maintaining-school-funding/
The Baltimore Sun reported on the release of a multi-stakeholder report outlining a comprehensive fix for MOE. You can read the report here.
Continue reaching out to elected officials. Take a few moments to contact the Governor and your legislators and tell them to fix the broken MOE law and to not "share" the cost of pensions with the counties: http://capwiz.com/nea/md/issues/alert/?alertid=60813666
You can also:
You can also:
- Text “MSEA” to 66937 to get legislative alerts and actions throughout session
- Call MSEA’s legislative hotline and connect to the General Assembly switchboard. The hotline is 866-268-MSEA (6732). Use it, share it, and use it again. The message will update as circumstances and targets dictate during the session.
- Participate in the February 27 Teacher Town Hall in Annapolis. The Town Hall will be an opportunity for educators from across the state to discuss protecting school funding and other critical issues with elected officials and policymakers. RSVP to participate in the Town Hall, and please share the registration link with your fellow activists.
Tuesday, January 24, 2012
Shifting teacher pensions jeopardizes education funding
Last week Governor O'Malley discussed plans to shift a portion of the cost of teacher pensions back to the local counties as a way to improve the state budget. Part of the state's argument has been that the pension fund is troubled.
From today's Frederick News-Post:
Shifting any of the cost of teacher pensions back to the county will do nothing but hurt the counties and their schools systems if the state's broken Maintenance of Effort law is not fixed, ensuring that counties fulfill their obligation to fully fund their school systems. For more information on MOE, go to www.mceanea.org/action/moe.php or www.marylandeducators.org/moe/.
From today's Frederick News-Post:
Teacher pension fund now sustainable
In its editorial, "Sharing the cost of teacher pensions," The Frederick News-Post states that "many believe" Maryland's pension system is "inarguably unsustainable."
In its editorial, "Sharing the cost of teacher pensions," The Frederick News-Post states that "many believe" Maryland's pension system is "inarguably unsustainable."
This conclusion must be challenged in light of last year's legislative session when the pension system underwent major reform. As a result of these reforms, actuaries for the State Retirement and Pension System as well as the General Assembly now project that the system is on a path for sustainability, expected to reach 80 percent funding by fiscal year 2023 and 100 percent funding in fiscal year 2030.
This was accomplished by increasing state employee contributions to their retirement by 40 percent; reducing benefits for service earned after June 30, 2011; increasing vesting for new employees from five to 10 years; and reducing the annual Cost of Living Adjustment for service earned on and after July 1, 2011.
To the contrary, the actions of Gov. Martin O'Malley and the General Assembly have provided a state pension system that is sustainable.
R. DEAN KENDERDINE, executive director, Maryland State Retirement and Pension System
Shifting any of the cost of teacher pensions back to the county will do nothing but hurt the counties and their schools systems if the state's broken Maintenance of Effort law is not fixed, ensuring that counties fulfill their obligation to fully fund their school systems. For more information on MOE, go to www.mceanea.org/action/moe.php or www.marylandeducators.org/moe/.
Thursday, December 22, 2011
MCEA Presents: Understanding Your Retirement Workshop
Tom Henry from Integrated Financial Solutions will be presenting this seminar for all MCEA members, especially those considering retiring in the next five years. The seminar will focus on:
- Pension and payout options in retirement
- Social Security retirement benefits
- Income from you investments
RSVP: Jackie Thompson at 301-294-6232 or jthompson@mceanea.org
Wednesday, October 26, 2011
Collective Bargaining Under Attack...Again.
Earlier this year, we witnessed Wisconsin Governor Scott Walker attack the ability for teachers and other public employees to unionize. His law passed, but not without a fight.
The attack on public employee unions has spread to Ohio where the Governor there signed a bill that strips away most collective bargaining rights for teachers, firefighters and police officers. Unions have mobilized in Ohio and they are fighting back. They collected nearly 1.3 million signatures to have the issue placed on the ballot this November to be considered for repeal. Check out the website We Are Ohio for details and how you can help.
The attack on public employee unions has spread to Ohio where the Governor there signed a bill that strips away most collective bargaining rights for teachers, firefighters and police officers. Unions have mobilized in Ohio and they are fighting back. They collected nearly 1.3 million signatures to have the issue placed on the ballot this November to be considered for repeal. Check out the website We Are Ohio for details and how you can help.
Friday, July 22, 2011
State Pension System Investments Soar
Last spring we witnessed a catastrophic fight in the Maryland General Assembly that resulted in draconian cuts to pension benefits for new teachers, as well as an increase in pension contributions for educators all across the state. The justification was that the plan was significantly underfunded. (Set aside for a moment that the increased contributions are not being used to strengthen the pension fund, but rather are being used to reduce the state government's contribution - a slight of hand that is doing nothing to improve the funding status of the plan).
Throughout the debate, MCEA and MSEA urged the General Assembly not to rush to judgement. We argued that long-term changes in plan benefits should not be made based on short-term swings in the investment markets. Yes, the recent recession had battered the value of the pension fund. But the fund needs to be managed for the long haul. It was a mistake 10 years ago when the state decided to reduce its annual funding to the pension plan (through the so-called "corridor funding method") because the plan was at that time fully funded. And it was a mistake last year to gut pension benefits because the funding status had dropped because of the recession.
Turns out we were right. Earlier today a report was released that indicated that the pension fund has gained an eye-popping $6 billion in value in one year: a 20% rate of return - three times the rate assumed by the plan's actuaries.
Given this new information we look forward to hearing from Senate President Mike Miller, who championed the gutting of the state teacher pension system. Educators all across the state will be watching. We don't need an admission that it was a mistake. A committement to reconsider and revoke the gutting of pension benefits in light of the recovery of the plan's investment will suffice.
Tom Israel, MCEA Executive Director.
Pension system gains $6 billion in investments, 20% rate of return
By Megan Poinski
Thanks to an improving national economy and careful portfolio management, the State Retirement and Pension System blew past its estimates and gained $6 billion in fiscal 2011, a 20% rate of return.
The performance was nearly three times the benchmark rate of return of 7.75%, set by the system’s board of trustees.
Retirement and Pension System spokesman Michael Golden said that the system’s success is through much of its diversification.
“It’s a combination of excellent management provided by our investment division and the turnabout of the economy,” he said.
The system made most of its money through private equity investments, which make up 47% of the entire portfolio, and had a rate of return of nearly 39%. Private equity and real estate also posted high rates of return – 24% for private equity, and 23% for real estate – but the system had invested substantially less in those areas.
There is no estimate of how this helps the pension system’s long-term unfunded liability because investment income is amortized over several years. However, Golden said, coupled with the legislative changes to contributions and future annuities that passed the General Assembly this year, it should make a significant difference. The most recent figures indicate that the pension system has funding for 64% of the pensions it has promised.
$73 million court judgment
The pension system got an unrelated piece of good news earlier this week. The Court of Appeals of Maryland ordered Seattle-based Milliman Inc., a former actuary for the system, to pay the state $73 million that the system missed out on as a result of improper calculations over years.
With this ruling from the state’s highest court, the issue has been definitively settled; there are no federal issues included in the lawsuit.
“This is a significant, important victory for the system and retirees,” Golden said.
Milliman worked with the pension system from 1982 to 2006, and made complex calculations to ensure that employer contributions were sufficient to meet pension needs. During a 2004 self-audit, Milliman discovered that it had forgotten to include benefits paid to surviving spouses of police officers and judges in its calculations for 22 years, impacting the State Police Retirement System, Law Enforcement Officers’ Pension System, and Judges’ Retirement System.
The state started pursuing $73 million from the actuarial firm — $34 million in lost contributions, and $38.8 million in interest that the state would have received. The case went through the Board of Contract Appeals, then the Baltimore City Circuit Court, which awarded the state only $39 million. This week’s ruling is on the final appeal, which was completely in the state’s favor.
Golden said the $73 million will go into the retirement trust fund, which is used to pay out benefits.
Milliman, which stopped working for the state when its contract expired in 2006, issued a written statement saying the company was disappointed in the decision. When Milliman stopped working for Maryland, the state was ahead of its retirement targets.
“The biggest losers in this decision are the citizens of Maryland and the citizens of any large state public retirement plans,” the company’s statement says. “If actuaries are forced to decline such assignments in the future for fear of unreasonable liability exposures, the people who count on these plans may be denied the talent and insights of professional actuaries.”
Throughout the debate, MCEA and MSEA urged the General Assembly not to rush to judgement. We argued that long-term changes in plan benefits should not be made based on short-term swings in the investment markets. Yes, the recent recession had battered the value of the pension fund. But the fund needs to be managed for the long haul. It was a mistake 10 years ago when the state decided to reduce its annual funding to the pension plan (through the so-called "corridor funding method") because the plan was at that time fully funded. And it was a mistake last year to gut pension benefits because the funding status had dropped because of the recession.
Turns out we were right. Earlier today a report was released that indicated that the pension fund has gained an eye-popping $6 billion in value in one year: a 20% rate of return - three times the rate assumed by the plan's actuaries.
Given this new information we look forward to hearing from Senate President Mike Miller, who championed the gutting of the state teacher pension system. Educators all across the state will be watching. We don't need an admission that it was a mistake. A committement to reconsider and revoke the gutting of pension benefits in light of the recovery of the plan's investment will suffice.
Tom Israel, MCEA Executive Director.
------------------------------------------------------------------------------------------------------------
Pension system gains $6 billion in investments, 20% rate of return
By Megan Poinski
Thanks to an improving national economy and careful portfolio management, the State Retirement and Pension System blew past its estimates and gained $6 billion in fiscal 2011, a 20% rate of return.
The performance was nearly three times the benchmark rate of return of 7.75%, set by the system’s board of trustees.
Retirement and Pension System spokesman Michael Golden said that the system’s success is through much of its diversification.
“It’s a combination of excellent management provided by our investment division and the turnabout of the economy,” he said.
The system made most of its money through private equity investments, which make up 47% of the entire portfolio, and had a rate of return of nearly 39%. Private equity and real estate also posted high rates of return – 24% for private equity, and 23% for real estate – but the system had invested substantially less in those areas.
There is no estimate of how this helps the pension system’s long-term unfunded liability because investment income is amortized over several years. However, Golden said, coupled with the legislative changes to contributions and future annuities that passed the General Assembly this year, it should make a significant difference. The most recent figures indicate that the pension system has funding for 64% of the pensions it has promised.
$73 million court judgment
The pension system got an unrelated piece of good news earlier this week. The Court of Appeals of Maryland ordered Seattle-based Milliman Inc., a former actuary for the system, to pay the state $73 million that the system missed out on as a result of improper calculations over years.
With this ruling from the state’s highest court, the issue has been definitively settled; there are no federal issues included in the lawsuit.
“This is a significant, important victory for the system and retirees,” Golden said.
Milliman worked with the pension system from 1982 to 2006, and made complex calculations to ensure that employer contributions were sufficient to meet pension needs. During a 2004 self-audit, Milliman discovered that it had forgotten to include benefits paid to surviving spouses of police officers and judges in its calculations for 22 years, impacting the State Police Retirement System, Law Enforcement Officers’ Pension System, and Judges’ Retirement System.
The state started pursuing $73 million from the actuarial firm — $34 million in lost contributions, and $38.8 million in interest that the state would have received. The case went through the Board of Contract Appeals, then the Baltimore City Circuit Court, which awarded the state only $39 million. This week’s ruling is on the final appeal, which was completely in the state’s favor.
Golden said the $73 million will go into the retirement trust fund, which is used to pay out benefits.
Milliman, which stopped working for the state when its contract expired in 2006, issued a written statement saying the company was disappointed in the decision. When Milliman stopped working for Maryland, the state was ahead of its retirement targets.
“The biggest losers in this decision are the citizens of Maryland and the citizens of any large state public retirement plans,” the company’s statement says. “If actuaries are forced to decline such assignments in the future for fear of unreasonable liability exposures, the people who count on these plans may be denied the talent and insights of professional actuaries.”
Tuesday, March 15, 2011
Largest Rally in Annapolis History!
Last night, more than 15,000 educators and public employees marched on the State Capitol demanding that our elected representatives keep their promises: their promise of adequate funding for our schools and their promise of retirement security for educators and public employees. It was the largest demonstration in Annapolis history!
1. Add your voice to the fight! Dial 1-888-216-PROMISE (1-888-216-7766) to call your state representatives. You will hear a brief script with suggested messages. Press 1 if you know which legislator you'd like to speak with and you'll be connected to the Capitol switchboard; press 2 to connect to legislators by entering your zip code.
2. To see (or post) pictures and video and commentary on the rally:
* Post your photos, videos, and comments to our Facebook page at www.facebook.com/marylandeducators.
* If you're on Twitter, please join many others in using the hashtag #rallytoktp to discuss the rally.
* Tag your Flickr photos with #RallytoKTP to add them to our collaborative album.
* And friend MSEA on YouTube and upload videos to our channel at www.youtube.com/MarylandEducation.
3. This is the beginning, not the end! Over the next two months, the Montgomery County Council will be making critical decisions impacting the MCPS budget. We will need to make our voices heard. On to Rockville!
4. To read press coverage of the rally:
AP: Union Rally by Thousands against Governor’s Plan
Baltimore Sun: Thousands of Union Members Storm Annapolis
Maryland Reporter: Analysis: O’Malley co-opts protest of his own budget
Washington Post: Md. teachers, state employees protest budget cuts, pension changes
WUSA 9: Union Rally Draws Thousands in Maryland to “Night of Hell”
WAMU: Maryland State Workers Rally Over Health Care, Pensions
WBAL (early story): Union Pension Rally Draws Thousands to Annapolis
WBAL (late story): Union Pension Rally Draws Thousands
WBFF: Union Rally
WJZ: Thousands Rally While Governor Considers Cuts to Keep State Moving
Annapolis Patch: Trumka: You Have Been Heard
1. Add your voice to the fight! Dial 1-888-216-PROMISE (1-888-216-7766) to call your state representatives. You will hear a brief script with suggested messages. Press 1 if you know which legislator you'd like to speak with and you'll be connected to the Capitol switchboard; press 2 to connect to legislators by entering your zip code.
2. To see (or post) pictures and video and commentary on the rally:
* Post your photos, videos, and comments to our Facebook page at www.facebook.com/marylandeducators.
* If you're on Twitter, please join many others in using the hashtag #rallytoktp to discuss the rally.
* Tag your Flickr photos with #RallytoKTP to add them to our collaborative album.
* And friend MSEA on YouTube and upload videos to our channel at www.youtube.com/MarylandEducation.
3. This is the beginning, not the end! Over the next two months, the Montgomery County Council will be making critical decisions impacting the MCPS budget. We will need to make our voices heard. On to Rockville!
4. To read press coverage of the rally:
AP: Union Rally by Thousands against Governor’s Plan
Baltimore Sun: Thousands of Union Members Storm Annapolis
Maryland Reporter: Analysis: O’Malley co-opts protest of his own budget
Washington Post: Md. teachers, state employees protest budget cuts, pension changes
WUSA 9: Union Rally Draws Thousands in Maryland to “Night of Hell”
WAMU: Maryland State Workers Rally Over Health Care, Pensions
WBAL (early story): Union Pension Rally Draws Thousands to Annapolis
WBAL (late story): Union Pension Rally Draws Thousands
WBFF: Union Rally
WJZ: Thousands Rally While Governor Considers Cuts to Keep State Moving
Annapolis Patch: Trumka: You Have Been Heard
Sunday, January 23, 2011
The Governor Gets It Wrong on Pensions
While we very much appreciate the Governor's decision not to support an increased shift in the costs of teacher pensions onto local counties, we believe he is listening to bad advice on how to restore the long term financial health of the pension plan. It is not necessary to gut the plan's benefits in order to 'save' it.
Understanding the State Teacher Pension Plan Issue
1. What is referred to as the state teacher pension plan covers most school system employees as well as most employees of the state’s public libraries and community colleges.
2. In 2000 the state teacher pension plan was fully funded.
3. In 2004, the General Assembly voted to begin underfunding the plan: each year contributing less than the actuarially determined funding level. (One estimate has calculated the underfunding at close to one billion dollars).
4. In 2006, the General Assembly voted to increase employee contributions from 2% to 5% to pay for improved benefits. The improvement was to be phased in over 22 years. The increased employee contribution paid the full cost of the improvement going forward. The General Assembly agreed to make the improvement retroactive eight years back to 1998. They took no further action to improve funding.
5. In 2008 the economy and investment markets crashed. The plan’s asset values dropped by twenty percent. There is general agreement that the market crash accounts for about 85% of the last report on the unfunded accrued liability, which the General Assembly’s underfunding formula accounts for the other 15%.
6. In 2011, The Governor has proposed reneging on the 2006 agreement. His proposal would have plan participants paying more than they are now, for benefits that are as bad as they were before 2006 – when Maryland was recognized as having one of the worst teacher pension plans in the nation. For a retirement benefit that teachers paid 2% of their annual salary for in 2005, teachers would now have to be paying more than three times that amount – at 7% of their annual salary. Not only would teachers lose the phase in of the improved pension benefit approved by the General Assembly in 2006, they’d essentially end up with a 5% pay cut to maintain the same inadequate retirement benefit they had before 2006.
7. There are adjustments that can be made in the pension plan to improve its long term financial health. Issues of the vesting period and early retirement rules can and should be reviewed. The State Retirement Board itself has proposed changes in corridor funding and smoothing rules that both could reduce the unfunded accrued liability. The Board is also conducting an experience audit this spring that will update plan assumptions about salary growth, retirement age, etc;, and it is expected that the audit will improve the plan’s financial outlook as well.
8. In 2010 the markets have recouped more than half their losses The Dow Jones Industrial Average is back above 11,000. These market improvements will begin to be reflected in the pension plan's next annual valuation. As State Treasurer Nancy Kopp has so accurately observed, the timing of the state’s annual plan valuation in relation to the peaks and valleys of the market, has a significant and random impact on the plan valuation. It is simply a snapshot in time.
9. Just as it was a mistake for the General Assembly to begin underfunding the plan on the heels of the booming investment market; it would be a mistake for them to gut pension benefits based on worst point in the recent bear market.
10. It is in all our interests that the state pension plan be restored to its former financial health. But it doesn’t have to be done by slashing promised retirement benefits to teachers, librarians, janitors and school bus drivers.
Tom Israel, MCEA Executive Director
Understanding the State Teacher Pension Plan Issue
1. What is referred to as the state teacher pension plan covers most school system employees as well as most employees of the state’s public libraries and community colleges.
2. In 2000 the state teacher pension plan was fully funded.
3. In 2004, the General Assembly voted to begin underfunding the plan: each year contributing less than the actuarially determined funding level. (One estimate has calculated the underfunding at close to one billion dollars).
4. In 2006, the General Assembly voted to increase employee contributions from 2% to 5% to pay for improved benefits. The improvement was to be phased in over 22 years. The increased employee contribution paid the full cost of the improvement going forward. The General Assembly agreed to make the improvement retroactive eight years back to 1998. They took no further action to improve funding.
5. In 2008 the economy and investment markets crashed. The plan’s asset values dropped by twenty percent. There is general agreement that the market crash accounts for about 85% of the last report on the unfunded accrued liability, which the General Assembly’s underfunding formula accounts for the other 15%.
6. In 2011, The Governor has proposed reneging on the 2006 agreement. His proposal would have plan participants paying more than they are now, for benefits that are as bad as they were before 2006 – when Maryland was recognized as having one of the worst teacher pension plans in the nation. For a retirement benefit that teachers paid 2% of their annual salary for in 2005, teachers would now have to be paying more than three times that amount – at 7% of their annual salary. Not only would teachers lose the phase in of the improved pension benefit approved by the General Assembly in 2006, they’d essentially end up with a 5% pay cut to maintain the same inadequate retirement benefit they had before 2006.
7. There are adjustments that can be made in the pension plan to improve its long term financial health. Issues of the vesting period and early retirement rules can and should be reviewed. The State Retirement Board itself has proposed changes in corridor funding and smoothing rules that both could reduce the unfunded accrued liability. The Board is also conducting an experience audit this spring that will update plan assumptions about salary growth, retirement age, etc;, and it is expected that the audit will improve the plan’s financial outlook as well.
8. In 2010 the markets have recouped more than half their losses The Dow Jones Industrial Average is back above 11,000. These market improvements will begin to be reflected in the pension plan's next annual valuation. As State Treasurer Nancy Kopp has so accurately observed, the timing of the state’s annual plan valuation in relation to the peaks and valleys of the market, has a significant and random impact on the plan valuation. It is simply a snapshot in time.
9. Just as it was a mistake for the General Assembly to begin underfunding the plan on the heels of the booming investment market; it would be a mistake for them to gut pension benefits based on worst point in the recent bear market.
10. It is in all our interests that the state pension plan be restored to its former financial health. But it doesn’t have to be done by slashing promised retirement benefits to teachers, librarians, janitors and school bus drivers.
Tom Israel, MCEA Executive Director
Thursday, January 13, 2011
Dangerous Pension Cuts
The following commentary by MCEA President Doug Prouty was just run in Baltimore Sun.
Reducing teacher benefits, as a state commission proposes, would harm Maryland's top-ranked education system
By Doug Prouty
3:45 PM EST, January 12, 2011
Maryland educators have kept their promises to the students they serve every day. We've kept our promise to make Maryland's schools No. 1. We've kept our promise to work tirelessly every day to ensure that every child has the education he or she needs to succeed in the future. And we've kept the promise that we made in 2006 to more than double our pension contributions and improve our pension system from the worst in the nation to about average.
Unfortunately, the recommendations issued late last year by the Public Employees' and Retirees' Benefit Sustainability Commission and likely to be taken up during the General Assembly session that began this week would threaten the promise of a secure retirement for our educators, exceptional public services for our citizens and world-class public schools for our children.
As members of the commission acknowledged, this process was rushed. At the same time that the commission was voting on drastic, potentially devastating proposals to shift pension costs to the counties or reduce educator benefits, members of the commission decried the insufficient time they'd had to thoroughly study the proposals. With better actuarial data coming in the spring — and with the commission voting to extend its life until October 2011 — one cannot help but conclude that this process was hasty.
Unfortunately, the commission's recommendations would saddle hundreds of thousands of working families with the burden of fixing the underfunding of the state's pension system. The system was fully funded as recently as 2000, but it now has assets sufficient to cover just 65.4 percent of its obligations, and the funding gap is increasing every year.
Two major developments have been the main cause of this underfunding. One is a new method of determining appropriate state funding levels for the system, which was adopted by the legislature in 2000. Known as the "corridor method," it has allowed the state to short the pension fund each year since it was passed. The other is the stock market crash of 2008, which accounts for 85 percent of the funding shortfall, according to information presented to the commission.
What do these two causes have in common? Neither has anything to do with the salaries or benefit levels of those in the pension system.
The pension commission's recommendations call for an increase in our contributions or a reduction in our benefits. As it stands, the state pension system is modest by any measure and below the national average. Under the present system, teachers hired today would earn 54 percent of the average salary they earned in their final three years if they retired after 30 years in the classroom. Teachers who began working before the 1998-99 school year earn less than that. Nationally, teacher pensions are typically 60 percent after 30 years of service.
Following the commission's recommendations could send our system back to being the worst in the nation, which would present a major obstacle to Maryland's recruitment and retention of excellent educators. The commission also recommended shifting some of the costs of our pensions to the counties, which do not have adequate resources to take on these costs. Such a shift — in some counties, of tens of millions of dollars — would cripple the ability of each county to adequately fund its school system, to prevent ballooning class sizes, or to adequately provide other important public services. No consideration seems to have been given to the dire financial straits in which Maryland's counties find themselves.
While the state budget crisis is serious, Marylanders should demand a thoughtful process in solving it — one that will consider the long-term effects of any proposed changes. In recommending such dire changes, the commission is playing with the future of Maryland's schools and schoolchildren. With such high stakes, it hardly seems too much to ask for any recommended changes to be based on the best available data and for there to be sufficient time to fully consider their impact in the long and short term.
Thanks to the benefits, education funding and support that elected officials have provided — and the promises that they've kept — our public schools were ranked No. 1 in the nation for the third year in a row. As the 2011 General Assembly begins its work, we urge the governor and the legislature to reject permanent changes in reaction to temporary circumstances and to keep their promise to maintain a sustainable pension system and an excellent public education system. Together, we can find sensible ways to secure funding for our pensions without jeopardizing funding for our public schools and our other priorities.
Doug Prouty is president of the Montgomery County Education Association. His e-mail is dprouty@mcea.nea.org.
Reducing teacher benefits, as a state commission proposes, would harm Maryland's top-ranked education system
By Doug Prouty
3:45 PM EST, January 12, 2011
Maryland educators have kept their promises to the students they serve every day. We've kept our promise to make Maryland's schools No. 1. We've kept our promise to work tirelessly every day to ensure that every child has the education he or she needs to succeed in the future. And we've kept the promise that we made in 2006 to more than double our pension contributions and improve our pension system from the worst in the nation to about average.
Unfortunately, the recommendations issued late last year by the Public Employees' and Retirees' Benefit Sustainability Commission and likely to be taken up during the General Assembly session that began this week would threaten the promise of a secure retirement for our educators, exceptional public services for our citizens and world-class public schools for our children.
As members of the commission acknowledged, this process was rushed. At the same time that the commission was voting on drastic, potentially devastating proposals to shift pension costs to the counties or reduce educator benefits, members of the commission decried the insufficient time they'd had to thoroughly study the proposals. With better actuarial data coming in the spring — and with the commission voting to extend its life until October 2011 — one cannot help but conclude that this process was hasty.
Unfortunately, the commission's recommendations would saddle hundreds of thousands of working families with the burden of fixing the underfunding of the state's pension system. The system was fully funded as recently as 2000, but it now has assets sufficient to cover just 65.4 percent of its obligations, and the funding gap is increasing every year.
Two major developments have been the main cause of this underfunding. One is a new method of determining appropriate state funding levels for the system, which was adopted by the legislature in 2000. Known as the "corridor method," it has allowed the state to short the pension fund each year since it was passed. The other is the stock market crash of 2008, which accounts for 85 percent of the funding shortfall, according to information presented to the commission.
What do these two causes have in common? Neither has anything to do with the salaries or benefit levels of those in the pension system.
The pension commission's recommendations call for an increase in our contributions or a reduction in our benefits. As it stands, the state pension system is modest by any measure and below the national average. Under the present system, teachers hired today would earn 54 percent of the average salary they earned in their final three years if they retired after 30 years in the classroom. Teachers who began working before the 1998-99 school year earn less than that. Nationally, teacher pensions are typically 60 percent after 30 years of service.
Following the commission's recommendations could send our system back to being the worst in the nation, which would present a major obstacle to Maryland's recruitment and retention of excellent educators. The commission also recommended shifting some of the costs of our pensions to the counties, which do not have adequate resources to take on these costs. Such a shift — in some counties, of tens of millions of dollars — would cripple the ability of each county to adequately fund its school system, to prevent ballooning class sizes, or to adequately provide other important public services. No consideration seems to have been given to the dire financial straits in which Maryland's counties find themselves.
While the state budget crisis is serious, Marylanders should demand a thoughtful process in solving it — one that will consider the long-term effects of any proposed changes. In recommending such dire changes, the commission is playing with the future of Maryland's schools and schoolchildren. With such high stakes, it hardly seems too much to ask for any recommended changes to be based on the best available data and for there to be sufficient time to fully consider their impact in the long and short term.
Thanks to the benefits, education funding and support that elected officials have provided — and the promises that they've kept — our public schools were ranked No. 1 in the nation for the third year in a row. As the 2011 General Assembly begins its work, we urge the governor and the legislature to reject permanent changes in reaction to temporary circumstances and to keep their promise to maintain a sustainable pension system and an excellent public education system. Together, we can find sensible ways to secure funding for our pensions without jeopardizing funding for our public schools and our other priorities.
Doug Prouty is president of the Montgomery County Education Association. His e-mail is dprouty@mcea.nea.org.
Monday, January 10, 2011
Understanding the Challenges Facing Our Schools
Many thanks to the more than 100 concerned and motivated educators who woke up to a frigid morning and falling snowflakes this past Saturday and still drove to Rockville for MCEA's Annual Legislative Breakfast to talk about the needs of our schools with our state legislators. Thanks also to our friends and fellow education advocates from MCAAP, SEIU, MCCPTA, and the Board of Education who joined us.
To learn more about the issues:
Courage in Challenging Times - welcoming message by Chris Lloyd, vice-president of MCEA and a National Board Certified Teacher who teaches Television Production at Baker Middle School. Chris also serves as co-chair of the Peer Assistance and Review Panel.
Truth and Myths about the State Pension Fund – analysis by David Helfman, executive director of the Maryland State Education Association. David began his career as a Certified Employee Benefits Speciaiist (CEBS). Read MSEA’s Pension Action Guide to learn more.
Race-To-The-Top, Teacher Evaluation and Student Testing – briefing by Betty Weller. Betty is co-chair with state superintendent of education Nancy Grasmick, of the recently created Maryland Council for Educator Effectiveness. Betty is vice-president of the Maryland State Education Association, and a teacher from Kent County. Go to the Council on Educator Effectiveness' website to follow the work of the Council.
Keeping the Promise: A Quality Education is a Fundamental Right of Every Child – a call to action by Doug Prouty, MCEA president, high school english teacher, and father of two MCPS students.
Background Materials:
• Historical trend of Montgomery County Government local funding of MCPS, Montgomery County Government Office of Management and Budget data
• Comparison chart of county expenditures on K-12 education, Maryland State Dept. of Education data
• Comparison chart of historical trends in county spending on education compared to Maintenance of Effort obligations, Maryland State Dept. of Education data
• Comparison chart of health insurance premium cost-sharing formulas in major Maryland school systems
• MSEA Pension Action Guide
To learn more about the issues:
Courage in Challenging Times - welcoming message by Chris Lloyd, vice-president of MCEA and a National Board Certified Teacher who teaches Television Production at Baker Middle School. Chris also serves as co-chair of the Peer Assistance and Review Panel.
Truth and Myths about the State Pension Fund – analysis by David Helfman, executive director of the Maryland State Education Association. David began his career as a Certified Employee Benefits Speciaiist (CEBS). Read MSEA’s Pension Action Guide to learn more.
Race-To-The-Top, Teacher Evaluation and Student Testing – briefing by Betty Weller. Betty is co-chair with state superintendent of education Nancy Grasmick, of the recently created Maryland Council for Educator Effectiveness. Betty is vice-president of the Maryland State Education Association, and a teacher from Kent County. Go to the Council on Educator Effectiveness' website to follow the work of the Council.
Keeping the Promise: A Quality Education is a Fundamental Right of Every Child – a call to action by Doug Prouty, MCEA president, high school english teacher, and father of two MCPS students.
Background Materials:
• Historical trend of Montgomery County Government local funding of MCPS, Montgomery County Government Office of Management and Budget data
• Comparison chart of county expenditures on K-12 education, Maryland State Dept. of Education data
• Comparison chart of historical trends in county spending on education compared to Maintenance of Effort obligations, Maryland State Dept. of Education data
• Comparison chart of health insurance premium cost-sharing formulas in major Maryland school systems
• MSEA Pension Action Guide
- MSEA's "Keep The Promise" Apple Pledge - Let your elected officials know you expect them to "Keep the Promise". Print out this Apple Pledge and send it to your representatives in Annapolis.
Monday, December 20, 2010
Keep The Promise
There were no real surprises this morning as the Public Employees’ and Retirees’ Benefit Sustainability Commission voted in favor of recommendations to the General Assembly that would reduce educator benefits and shift pension costs to the local level. Be on the lookout for a more detailed analysis in the coming days.
The following statement was just released from AFSCME, AFSCME 67, AFT, SEIU, and MSEA.
Today’s Recommendations of the Public Employees’ and Retirees’ Benefit Sustainability Commission:
Joint Statement by Maryland Labor Organizations
AFSCME Maryland, AFSCME 67, AFT Maryland, the Maryland State Education Association, and SEIU Maryland are deeply disappointed in today’s recommendations by the Public Employees’ and Retirees’ Benefit Sustainability Commission, which would saddle hundreds of thousands of Maryland’s working families with the responsibility for covering up the shortcomings of Wall Street and the State’s broken funding promises. The Commission’s recommendations are frighteningly short-sighted and would be detrimental to the stability and quality of Maryland’s public schools and public services. The Commission’s recommendation to shift the cost of teacher pensions to local school systems in particular would have a devastating impact on local funding, resulting in layoffs, additional cuts in local services, critical dollars out of the classroom, and seriously jeopardizing our children’s education and future.
State workers keep us safe, maintain our roads, and provide quality services for children and families. Despite under-staffing, pay cuts, and furloughs, these dedicated employees work hard every day to provide the vital services that keep moving Maryland forward. Haphazardly slashing our already modest benefits will burden the State with massive recruitment and retention issues, as well as dooming many retirees to a future with insufficient retirement funds and healthcare coverage, creating additional long-term problems for state and local governments.
Despite the challenging fiscal climate, there are viable solutions worth investigating together that have not been adequately addressed by the Commission. We urge the General Assembly and the Governor not to make the same mistakes when they take up this issue in January.
Maryland’s public employees have kept their promise by increasing their contributions to the system and by providing outstanding public schools and services. We will work with the General Assembly and the Governor to ensure that elected officials keep their promise of a secure retirement for employees, exceptional public services for our citizens, and world-class public schools for our children.
The following statement was just released from AFSCME, AFSCME 67, AFT, SEIU, and MSEA.
Today’s Recommendations of the Public Employees’ and Retirees’ Benefit Sustainability Commission:
Joint Statement by Maryland Labor Organizations
AFSCME Maryland, AFSCME 67, AFT Maryland, the Maryland State Education Association, and SEIU Maryland are deeply disappointed in today’s recommendations by the Public Employees’ and Retirees’ Benefit Sustainability Commission, which would saddle hundreds of thousands of Maryland’s working families with the responsibility for covering up the shortcomings of Wall Street and the State’s broken funding promises. The Commission’s recommendations are frighteningly short-sighted and would be detrimental to the stability and quality of Maryland’s public schools and public services. The Commission’s recommendation to shift the cost of teacher pensions to local school systems in particular would have a devastating impact on local funding, resulting in layoffs, additional cuts in local services, critical dollars out of the classroom, and seriously jeopardizing our children’s education and future.
State workers keep us safe, maintain our roads, and provide quality services for children and families. Despite under-staffing, pay cuts, and furloughs, these dedicated employees work hard every day to provide the vital services that keep moving Maryland forward. Haphazardly slashing our already modest benefits will burden the State with massive recruitment and retention issues, as well as dooming many retirees to a future with insufficient retirement funds and healthcare coverage, creating additional long-term problems for state and local governments.
Despite the challenging fiscal climate, there are viable solutions worth investigating together that have not been adequately addressed by the Commission. We urge the General Assembly and the Governor not to make the same mistakes when they take up this issue in January.
Maryland’s public employees have kept their promise by increasing their contributions to the system and by providing outstanding public schools and services. We will work with the General Assembly and the Governor to ensure that elected officials keep their promise of a secure retirement for employees, exceptional public services for our citizens, and world-class public schools for our children.
Friday, November 19, 2010
MCEA Testifies at State Pension Commission
On Monday November 15th, MCEA President Doug Prouty testified before the Maryland Commission on Employees' and Retirees' Benefit Sustainability about the importance of preserving the long-term financial health of the state pension plan. Reprinted below is his testimony.
Thank you for the opportunity to speak with you today. The members of MSEA appreciate your hard work to gain an understanding of the complexity of the issue that face us; the General Assembly, the participants in the state pension system, and those who fund it.
The Commission’s title rightly identifies benefit sustainability as the primary purpose of your work. There are some in this debate that define the problem as that of excessive benefits. The average annual benefit under the Maryland State Teachers Pension Systems was about $17,500 last year- hardly a lavish lifestyle to rely on in retirement. Nor is it the cause of the current problem.
To answer the question of sustainability, we must first understand how we got here:
• In 2000, the Maryland State Teachers Retirement and Pension Fund was fully funded, largely due to investment gains in a strong market.
• In 2002, the legislature voted to partially offset the cost of a statewide tax cut by changing the funding formula for the pension plan. The state's contribution rates were frozen at FY2000 levels as long as funded status was between 90% and 110%. That's the "corridor". And if the funding status fell below 90%, the state only had to increase its annual contribution by 1/5 of the shortfall each year – allowing the underfunding to continue to accelerate .
In the subsequent eight years, several things have happened:
• 'Corridor funding' decreased the amount that the state government put into the pension plan each year.
• In 2006, the legislature voted to improve the pension plan’s benefits; moving the Maryland plan from one of the worst in the nation to the national average. Participants increased their annual contribution to the plan from 2% to 5% of salary.
• The recession caused a massive drop in both the value of the plan's assets and its annual investment income - as was true for every other investment fund in the nation. Reports indicate that the losses in investment income and value due to the recession account for 85% of the current shortfall.
Just as it was ill-advised for the legislature to approve the “corridor funding” rule in 2002 on the heels of a bull market, it would be ill-advised in 2010 to slash plan benefits on the heels of the most recent bear market.
Chatter about eliminating the current defined benefit is a solution in search of a problem. It’s not as if$25,000 is an exorbitant annual retirement benefit. Nor was it benefit levels that caused the current shortfall in the plan; it was the recession.
Add to that the fact that changing from a defined benefit plan to any alternative is more costly for a number of years and one has to wonder why such a change would even be suggested. It is worth noting that two states- Arkansas and West Virginia- are abandoning defined contribution plans after having switched because anticipated savings are unrealized.
Any changes considered in the plan or its funding must reflect the complexity of the circumstances in which we find ourselves. What are the goals of the state pension system? Ultimately, they are to assure a reasonable standard of living upon retirement to the participants in the plan and to help attract and retain the highest quality employees to Maryland and its schools. The teacher pension system does an adequate job at achieving the first goal at present- it is average when compared to the rest of the country. It is certainly little to expect that an average system not be changed in a way that would make it worse. Any changes you may consider recommending need to have the second goal in mind as well.
Simply shifting part of the cost of the Plan from the state to the counties does nothing to address either of these goals. Nor does cost-shifting do anything to address the long term financial sustainability of the Plan, unless one believes that counties need greater ‘fiscal discipline’ to slow the growth in salaries.
If the only question being asked is “how to make the state budget look balanced”, then passing off costs to the counties makes oddly narrow sense, but does nothing to address the long-term sustainability of the Plan. It doesn’t do much for taxpayers either, since it just shifts the tax burden to local governments who will have to take the hard votes to raise taxes in lieu of the state legislature.
At least a decade ago, when the state passed off the cost of teacher social security payments onto local governments, the state granted additional local taxing authority. This time a shift would be even tougher on local governments, since there is no additional increase in taxing authority.
The ramifications of shifting part of the costs of teacher pensions to the counties are multiple, and none are good. Teachers- like all those who work in our public schools, libraries and community colleges - do incredible work with decreasing resources every day. It is the most difficult job that I have ever held and has become more so in the past decade. Over time, teachers will leave Maryland or even leave the profession. Restoring cuts in positions that have occurred around the state would also be made more difficult. There are fewer reading support teachers, for example, who assist our most at risk students. Class sizes will continue to increase.
What about the smaller and the less wealthy counties that will have the least ability to absorb these additional costs? With less ability to generate local tax revenues, will cost-shifting exacerbate the gaps between the haves and the have-nots?
Such an action will also make it more difficult to attract the best employees to Maryland’s public schools, as stagnant wages make a career in public education less attractive.
If the changes to the system being advocated by some also occur, public education, and therefore the students who benefit from this most basic right, would be damaged. The current plan encourages teachers to stay in Maryland and in the profession. Any change to a hybrid or defined contribution plan in an era when increasing attention is being paid to the importance of having an expert teacher in each classroom- indeed , research has shown that this is the most important factor in student achievement - would discourage the best and the brightest from considering our schools as a place to work.
Such a change also places those in the system at risk of outliving their savings and becoming dependent on social services, for which the funding comes from the same source- the state coffers.
Finally, it is also a solution to the wrong problem- we know that the most significant factor in the current underfunded state of the pension system is the dismal performance of the stock market.
We can fix the system to be sure that we achieve its goals without causing harm to the students of Maryland and the professionals who care for, instruct, and challenge them every day. The proposals to move away from ‘corridor funding’ and extend the period of time over which investment losses can be smoothed out are a good start.
Thanks for all of your time, energy, and hard work in helping to arrive at a solution
------------------------------------------------------------------------
TESTIMONY
before the
Maryland Commission on Employees' and Retirees' Benefit Sustainability
By Doug Prouty, President
Montgomery County Education Association
On behalf of
The Maryland State Education Association
Thank you for the opportunity to speak with you today. The members of MSEA appreciate your hard work to gain an understanding of the complexity of the issue that face us; the General Assembly, the participants in the state pension system, and those who fund it.
The Commission’s title rightly identifies benefit sustainability as the primary purpose of your work. There are some in this debate that define the problem as that of excessive benefits. The average annual benefit under the Maryland State Teachers Pension Systems was about $17,500 last year- hardly a lavish lifestyle to rely on in retirement. Nor is it the cause of the current problem.
To answer the question of sustainability, we must first understand how we got here:
• In 2000, the Maryland State Teachers Retirement and Pension Fund was fully funded, largely due to investment gains in a strong market.
• In 2002, the legislature voted to partially offset the cost of a statewide tax cut by changing the funding formula for the pension plan. The state's contribution rates were frozen at FY2000 levels as long as funded status was between 90% and 110%. That's the "corridor". And if the funding status fell below 90%, the state only had to increase its annual contribution by 1/5 of the shortfall each year – allowing the underfunding to continue to accelerate .
In the subsequent eight years, several things have happened:
• 'Corridor funding' decreased the amount that the state government put into the pension plan each year.
• In 2006, the legislature voted to improve the pension plan’s benefits; moving the Maryland plan from one of the worst in the nation to the national average. Participants increased their annual contribution to the plan from 2% to 5% of salary.
• The recession caused a massive drop in both the value of the plan's assets and its annual investment income - as was true for every other investment fund in the nation. Reports indicate that the losses in investment income and value due to the recession account for 85% of the current shortfall.
Just as it was ill-advised for the legislature to approve the “corridor funding” rule in 2002 on the heels of a bull market, it would be ill-advised in 2010 to slash plan benefits on the heels of the most recent bear market.
Chatter about eliminating the current defined benefit is a solution in search of a problem. It’s not as if$25,000 is an exorbitant annual retirement benefit. Nor was it benefit levels that caused the current shortfall in the plan; it was the recession.
Add to that the fact that changing from a defined benefit plan to any alternative is more costly for a number of years and one has to wonder why such a change would even be suggested. It is worth noting that two states- Arkansas and West Virginia- are abandoning defined contribution plans after having switched because anticipated savings are unrealized.
Any changes considered in the plan or its funding must reflect the complexity of the circumstances in which we find ourselves. What are the goals of the state pension system? Ultimately, they are to assure a reasonable standard of living upon retirement to the participants in the plan and to help attract and retain the highest quality employees to Maryland and its schools. The teacher pension system does an adequate job at achieving the first goal at present- it is average when compared to the rest of the country. It is certainly little to expect that an average system not be changed in a way that would make it worse. Any changes you may consider recommending need to have the second goal in mind as well.
Simply shifting part of the cost of the Plan from the state to the counties does nothing to address either of these goals. Nor does cost-shifting do anything to address the long term financial sustainability of the Plan, unless one believes that counties need greater ‘fiscal discipline’ to slow the growth in salaries.
If the only question being asked is “how to make the state budget look balanced”, then passing off costs to the counties makes oddly narrow sense, but does nothing to address the long-term sustainability of the Plan. It doesn’t do much for taxpayers either, since it just shifts the tax burden to local governments who will have to take the hard votes to raise taxes in lieu of the state legislature.
At least a decade ago, when the state passed off the cost of teacher social security payments onto local governments, the state granted additional local taxing authority. This time a shift would be even tougher on local governments, since there is no additional increase in taxing authority.
The ramifications of shifting part of the costs of teacher pensions to the counties are multiple, and none are good. Teachers- like all those who work in our public schools, libraries and community colleges - do incredible work with decreasing resources every day. It is the most difficult job that I have ever held and has become more so in the past decade. Over time, teachers will leave Maryland or even leave the profession. Restoring cuts in positions that have occurred around the state would also be made more difficult. There are fewer reading support teachers, for example, who assist our most at risk students. Class sizes will continue to increase.
What about the smaller and the less wealthy counties that will have the least ability to absorb these additional costs? With less ability to generate local tax revenues, will cost-shifting exacerbate the gaps between the haves and the have-nots?
Such an action will also make it more difficult to attract the best employees to Maryland’s public schools, as stagnant wages make a career in public education less attractive.
If the changes to the system being advocated by some also occur, public education, and therefore the students who benefit from this most basic right, would be damaged. The current plan encourages teachers to stay in Maryland and in the profession. Any change to a hybrid or defined contribution plan in an era when increasing attention is being paid to the importance of having an expert teacher in each classroom- indeed , research has shown that this is the most important factor in student achievement - would discourage the best and the brightest from considering our schools as a place to work.
Such a change also places those in the system at risk of outliving their savings and becoming dependent on social services, for which the funding comes from the same source- the state coffers.
Finally, it is also a solution to the wrong problem- we know that the most significant factor in the current underfunded state of the pension system is the dismal performance of the stock market.
We can fix the system to be sure that we achieve its goals without causing harm to the students of Maryland and the professionals who care for, instruct, and challenge them every day. The proposals to move away from ‘corridor funding’ and extend the period of time over which investment losses can be smoothed out are a good start.
Thanks for all of your time, energy, and hard work in helping to arrive at a solution
Wednesday, November 10, 2010
Understanding the Debate over Maryland Teacher Pensions
Now that the election is over, Annapolis watchers are turning their attention to the upcoming state legislative session (Jan-April) and the ongoing debate over funding teacher pensions. An MCEA member recently asked about proposals to 1) eliminate "corridor funding" and 2) pay off investment losses over 10 years rather than five. Understanding those proposals is a good way to understand the debate.
Background on Maryland Teacher Pensions
In 2000, the Maryland State Teachers Retirement and Pension Fund was fully funded, largely due to investment gains in a strong market.
In 2002, the legislature voted to partially offset the cost of a statewide tax cut by changing the funding formula for the pension plan. The state's contribution rates were frozen at FY2000 levels as long as funded status was between 90% and 110%. That's the "corridor". And if the funding status fell below 90%, the state only had to increase its annual contribution by 1/5 of the shortfall.
In the subsequent eight years, several things have happened:
The proposal to phase out corridor funding is strongly in the interest of pension plan participants. Corridor funding is an accounting gimmick that allows the state to put in less than it's share of plan contributions. (Remember - teachers have increased their contributions.)
A proposal to pay off investment losses over 10 years instead of 5 also sounds like a wise move.
Decisions affecting the long term stability of the pension plan should not be made on the basis of short-term market swings. Just as it was a mistake in 2002 - on the heels of the market boom of the late 1990s - to cut back on the state's contributions: it would be a mistake in 2010 to slash benefits because of the short-term investment losses of the recent recession.
Currently, the swings in the market are "absorbed" over 5 years. It's a means of smooting out the impact of swings in the market. Shifting to a 10 year smoothing formula lessens the immediate impact of wide swings in the investment markets.
Combining the two proposals is an intriguing concept. More importantly, it is shifting the discussion to the real issue of how to ensure the long term financial stability of the pension plan. Last year's debate in Annapolis over shifting the costs from the state government to local governments was a side show. Cost-shifting does nothing to address the underfunding of the pension plan.
A statewide "Commission on Employees' and Retirees' Benefit Sustainability" is due to issue an initial report in December, prior to the legislative session. Montgomery County is represented on the Commission by both State Treasurer Nancy Kopp and businessman Aris Mardirossian. A number of very informative briefing papers have been prepared for the Commission.
Here in Montgomery County, MCEA is meeting regularly with an "Ad Hoc Pension Work Group" designed to coordinate the County's strategy on the state pension issue. Led by State Senator Rich Madeleno, the Work Group includes state senators, state delegates, members of the county council and board of education, as well as representatives of the county executive, Montgomery College, and the school system - and college - employee organizations.
This issue will be one of several important debates in Annapolis this winter that will have serious implications for educators, public education, and taxpayers in Montgomery County.
Tom Israel, MCEA Executive Director.
Background on Maryland Teacher Pensions
In 2000, the Maryland State Teachers Retirement and Pension Fund was fully funded, largely due to investment gains in a strong market.
In 2002, the legislature voted to partially offset the cost of a statewide tax cut by changing the funding formula for the pension plan. The state's contribution rates were frozen at FY2000 levels as long as funded status was between 90% and 110%. That's the "corridor". And if the funding status fell below 90%, the state only had to increase its annual contribution by 1/5 of the shortfall.
In the subsequent eight years, several things have happened:
1. The 'corridor funding' accounting rules decreased the amount that the state goverment had to put into the pension plan each year.
2. In 2006 teachers won a significant improvement in pension benefits; moving the Maryland plan from one of the worst in the nation to the national average. Teachers increased their annual contribution to the plan from 2% to 5% of salary.
3. The recession caused a massive drop in both the value of the plan's assets and its annual investment income - as was true for every other investment fund in the nation."Corridor Funding" and Smoothing Investment Losses
The proposal to phase out corridor funding is strongly in the interest of pension plan participants. Corridor funding is an accounting gimmick that allows the state to put in less than it's share of plan contributions. (Remember - teachers have increased their contributions.)
A proposal to pay off investment losses over 10 years instead of 5 also sounds like a wise move.
Decisions affecting the long term stability of the pension plan should not be made on the basis of short-term market swings. Just as it was a mistake in 2002 - on the heels of the market boom of the late 1990s - to cut back on the state's contributions: it would be a mistake in 2010 to slash benefits because of the short-term investment losses of the recent recession.
Currently, the swings in the market are "absorbed" over 5 years. It's a means of smooting out the impact of swings in the market. Shifting to a 10 year smoothing formula lessens the immediate impact of wide swings in the investment markets.
Combining the two proposals is an intriguing concept. More importantly, it is shifting the discussion to the real issue of how to ensure the long term financial stability of the pension plan. Last year's debate in Annapolis over shifting the costs from the state government to local governments was a side show. Cost-shifting does nothing to address the underfunding of the pension plan.
A statewide "Commission on Employees' and Retirees' Benefit Sustainability" is due to issue an initial report in December, prior to the legislative session. Montgomery County is represented on the Commission by both State Treasurer Nancy Kopp and businessman Aris Mardirossian. A number of very informative briefing papers have been prepared for the Commission.
Here in Montgomery County, MCEA is meeting regularly with an "Ad Hoc Pension Work Group" designed to coordinate the County's strategy on the state pension issue. Led by State Senator Rich Madeleno, the Work Group includes state senators, state delegates, members of the county council and board of education, as well as representatives of the county executive, Montgomery College, and the school system - and college - employee organizations.
This issue will be one of several important debates in Annapolis this winter that will have serious implications for educators, public education, and taxpayers in Montgomery County.
Tom Israel, MCEA Executive Director.
Friday, October 15, 2010
The Bottom Line on Teacher Pensions
It's no secret that funding for the state teacher pension plan is going to be controversial in the next session of the Maryland General Assembly come January. Last year, Senate President Mike Miller put on a full court press to shift the pension costs from the state to the counties. What he got was a study commission that is scheduled to report back out before January.
Unfortuantely, Miller is focussed on the wrong problem. His concern appears to be limited to offloading the costs from the state to balance their books - regardless of the impact on county budgets. But he misses the underlying problem of ensuring the long-term financial health of the plans.
As recently as 2000, the state pension system was fully funded. As of last summer, the funding status had dropped to 64%. Simply shifting the costs does nothing to address this funding shortfall. So what caused the drop?
It's fairly simple. There are four reasons:
1. Investment losses. To quote the well-worn cliche: "it's the economy stupid". Like every pension and retirement plan in the nation, the Maryland pension system has been battered by a drop in investment returns (-20%) and asset value (-22%) in the last year alone due to the recession.
2. Accouting gimmicks by the state. In 2002, the state mandated a "corridor funding formula" that served to reduce the annual cost to the state. No other state in the nation using this technique, and the result has been to artificially lower the State's contribution to the plan.
3. The fund is underperforming. A recent report compared the performance of the Maryland plans to those in other states, and found that the Maryland plan "has significantly trailed the median investment returns of its peers to the tune of $3 billion over the last ten years" and that the substandard results "may be the result of asset allocation decisions, manager investment selections, or both".
4. Salaries have gone up. Not in the last three years, but they are higher now than in 2000. This is in no small part due to funding incentives provided by the state (the Bridge to Excellence, etc.). Salaries are negotiated locally - but we shouldn't forget that it is the state that a) sets the benefit levels, b) uses 'corridor funding' to underfund the plan, and c) chooses the investment managers.
The state's "Benefits Sustainabilty Commission" has begun work, and there are a number of useful reports at that link for those interested in reading in more detail about these issues. It's important for them to understand how we got here as they ponder their recommendations. Simply shifting the costs to the counties does nothing to address the funding problem. Something needs to be done to ensure the long term financial health of the plans, but let's not blame the victims.
In the last few years, teachers have increasd their annual contribution to their pensions from 2% of their salaries to 5% of their salaries. We are doing our part. But we didn't cause the recession. And it's the state that is responsible for its accounting gimmicks and poor investment management.
Tom Israel, MCEA Executive Director
Unfortuantely, Miller is focussed on the wrong problem. His concern appears to be limited to offloading the costs from the state to balance their books - regardless of the impact on county budgets. But he misses the underlying problem of ensuring the long-term financial health of the plans.
As recently as 2000, the state pension system was fully funded. As of last summer, the funding status had dropped to 64%. Simply shifting the costs does nothing to address this funding shortfall. So what caused the drop?
It's fairly simple. There are four reasons:
1. Investment losses. To quote the well-worn cliche: "it's the economy stupid". Like every pension and retirement plan in the nation, the Maryland pension system has been battered by a drop in investment returns (-20%) and asset value (-22%) in the last year alone due to the recession.
2. Accouting gimmicks by the state. In 2002, the state mandated a "corridor funding formula" that served to reduce the annual cost to the state. No other state in the nation using this technique, and the result has been to artificially lower the State's contribution to the plan.
3. The fund is underperforming. A recent report compared the performance of the Maryland plans to those in other states, and found that the Maryland plan "has significantly trailed the median investment returns of its peers to the tune of $3 billion over the last ten years" and that the substandard results "may be the result of asset allocation decisions, manager investment selections, or both".
4. Salaries have gone up. Not in the last three years, but they are higher now than in 2000. This is in no small part due to funding incentives provided by the state (the Bridge to Excellence, etc.). Salaries are negotiated locally - but we shouldn't forget that it is the state that a) sets the benefit levels, b) uses 'corridor funding' to underfund the plan, and c) chooses the investment managers.
The state's "Benefits Sustainabilty Commission" has begun work, and there are a number of useful reports at that link for those interested in reading in more detail about these issues. It's important for them to understand how we got here as they ponder their recommendations. Simply shifting the costs to the counties does nothing to address the funding problem. Something needs to be done to ensure the long term financial health of the plans, but let's not blame the victims.
In the last few years, teachers have increasd their annual contribution to their pensions from 2% of their salaries to 5% of their salaries. We are doing our part. But we didn't cause the recession. And it's the state that is responsible for its accounting gimmicks and poor investment management.
Tom Israel, MCEA Executive Director
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